1July 2, 1997, the day after the return of Hong Kong, after several days of close combat with international speculators, the US dollar reserves of the Bank of Thailand were all exhausted, which failed to stop the selling of Thai baht in the market. Thailand was forced to abandon the fixed exchange rate system, and the Thai baht leaked thousands of miles, which opened the prelude to the financial crisis in Southeast Asia. At first, Hong Kong was not greatly affected, but with the careful planning and operation of international speculators, in just two months, the crisis spread rapidly, and the Philippines, Indonesia, Malaysia and South Korea were involved in succession, and the stock markets of most countries in East Asia collapsed and their currencies depreciated. After Taiwan Province Province gave up NT 10 yuan in late June, Hong Kong has become a tottering defender. 1997 in the first three quarters, the Hong Kong stock market showed a good trend, but it was suspected of overheating, which accumulated a lot of downward pressure. In this case, international speculators aimed at the Hang Seng Index, and they adopted a two-pronged strategy of stock market and foreign exchange market in an attempt to gain speculative profits from the stock market crash and the depreciation of the Hong Kong dollar. 165438 in four days from October 20 to 24, and Hong Kong stocks spilled 3 175 points. 1001On October 28th, the Hang Seng Index fell 1428 points in one day, falling below the 10,000 mark to 9060 points. Although it rebounded to 12000 in April of 1998, by August of 1998, the Hang Seng Index had reached 6660. In less than a year, the stock market value has shrunk by more than half. At the same time, in the foreign exchange market, international speculators sold Hong Kong dollars crazily. In order to maintain the linked exchange rate system, Hong Kong monetary authorities had to buy back a large number of Hong Kong dollars, which led to a sharp rise in interest rates and a sharp decline in money supply, which led to a large amount of funds withdrawing from the stock market and further aggravated the stock price decline. For Hong Kong, the impact of the financial turmoil has plunged the overall economy into a predicament that has not happened for many years. The plunge in the stock market has greatly affected the confidence of investors. The amount of capital flowing into Hong Kong has decreased, and the number and transaction volume of newly listed companies have also fallen sharply, which has directly affected the economic development of Hong Kong. Compared with the high-speed GDP growth of 6% in the first three quarters, the growth rate in the fourth quarter dropped to 2.7%, and reached 1998 in the first quarter, the first negative growth of 2.8% in the previous 13 years. This negative growth trend continued until 1999 in the second quarter. As an economy highly dependent on foreign trade, Hong Kong's trade is an important engine of economic development. In this storm, Hong Kong's exports dropped significantly due to the currency depreciation of Southeast Asian countries and weak external demand. 1998 overall exports in the first half of the year decreased by 2. 1% compared with the same period of last year. In July, the situation continued to deteriorate, with a drop of more than 10% in the same period, and the service trade also showed a downward trend. Similar to the weak external demand caused by the financial turmoil, Hong Kong's internal demand has also fallen into weakness. 1998 throughout the year, private consumption and investment in fixed assets continued to decline, and both internal and external demand were depressed, which eventually led to economic stagnation or even recession. The impact of the financial turmoil is not only manifested in the bursting of the original bubble economy, but also in the impact on the real economy. Hong Kong's economy has accumulated a lot of bubbles in the years of rapid development, especially in the real estate market. The inflated real estate price can't stand the test of the financial crisis. 1998' s monthly average number of apartment transactions and amount decreased by more than 50% compared with 1997. The sharp drop in asset prices led to the bursting of the bubble, which triggered a serious negative wealth effect, greatly suppressed internal demand and directly affected the investment in the real economy. The direct impact of economic recession is the increase of unemployment rate. In the year after the reunification, the unemployment rate rose from 2.2% in July and September of 1997 to 5% in August of 1998, and the number of unemployed people reached175,000, the highest unemployment level in Hong Kong since 1976. Unemployment once became a prominent problem that plagued Hong Kong society. The resulting public anxiety aggravated their panic, and their confidence in the economy was severely hit. They dare not spend money, which leads to the depression of retail industry, the closure of enterprises and the rise of unemployment rate. The vicious circle thus formed aggravates the difficulty of economic recovery. In the face of difficult times, the Hong Kong authorities have shown commendable courage, determination and resilience. The SAR Government is soberly aware that the confidence of citizens and investors in Hong Kong's economy must be restored first. Therefore,1February 1998, in the first budget independently compiled, the authorities proposed tax relief measures as high as HK$ 56.8 billion, and increased public expenditure on housing and transportation. In order to relieve people's difficulties and increase confidence. In June+10, 5438, the then Chief Executive Tung Chee-hwa put forward a plan to revitalize the economy in an all-round way in his policy address, including the government's expansion of infrastructure investment, the development of innovative technologies, the stabilization of the financial system and housing policies, and the strengthening of personnel training. Among the various measures taken by the government, the most noteworthy is that at the critical moment when international speculators were frantically suppressing the stock market and selling the Hong Kong dollar, the authorities decisively used foreign exchange reserves to intervene in the market, and finally crushed the attempts of international speculators to manipulate the market maliciously. From1July 1997 to1August 1998, the Hong Kong government experienced the test of the financial turmoil for one year and learned some lessons from it, so it decided to change its response measures and intervene in the financial market. In mid-August, 1998, international speculators launched a new round of offensive. Hang Seng Index plunged for three consecutive days, 13 fell to 6660 points. At this critical moment, the government intervened with foreign exchange reserves and bought a large number of blue chips. The Hang Seng Index rose by 584 points that day, which frustrated the wishful thinking of international speculators. Then on August 28th, faced with the resurgence of international speculators, the authorities faced the challenge again, and finally defeated the attacks of international speculators and stabilized the Hang Seng Index. On that day, the market turnover exceeded HK$ 79 billion, setting a historical record for Hong Kong's securities market. These two contests were later called "Hong Kong Financial Defence War" or "Heavenly Punishment". Although the Hong Kong government's intervention in the market has been criticized by some western media, the government's intervention in the economy under special circumstances has also been recognized by more and more people. Since then, Hong Kong has been rated as the freest and most open market in the world in the 1998 economic freedom index report published by the American Heritage Foundation, which severely criticized the Hong Kong government's entry into the market. The "financial defense war" frustrated the wishful thinking of international speculators trying to make a fortune by taking advantage of the stock market decline. In the foreign exchange market, it is precisely because the Hong Kong authorities firmly adhere to the linked exchange rate system that the Hong Kong dollar has not depreciated sharply, and there has not been a phenomenon of shrinking wealth and economic retrogression like some countries in Southeast Asia, so that the economic development achievements of Hong Kong are basically unaffected. This laid a good foundation for the subsequent economic recovery and helped Hong Kong's economy get rid of the gloom in a relatively short period of time. Another important reason why Hong Kong has stood firm in the financial turmoil is the strong support from the Mainland. When Hong Kong's stock market and foreign exchange market were repeatedly hit by international speculators, the central government solemnly stated that once the linked exchange rate system between the Hong Kong dollar and the US dollar was hit, the central government would resolutely support the exchange rate of the Hong Kong dollar. It is the clear statement of the central government that has dealt a blow to the arrogance and confidence of national speculators, forcing them to retreat in the face of the powerful foreign exchange reserves of 654.38 billion US dollars in the Mainland and 98 billion US dollars in Hong Kong. The strong development momentum of the mainland after the 1997 economic "soft landing" also restored the confidence of international investors in the Hong Kong economy in a short time. By the end of 1998, Hong Kong's economy showed signs of breathing and stabilization, and then embarked on the road of economic recovery. (university of international business and economics Institute of International Economics) Original/Overseas/Zhuanti/HKSZN/2007-06/27/Content _ 8447874.htm